BUY: DMG & Partners Securities - Nov 20, 2008 (BT)

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Brokers' Take

BUY: DMG & Partners Securities

By Compiled by Conrad Tan
Nov 20, 2008
The Business Times


Singapore Strategy
DMG & Partners Securities, Nov 19

TARGETING survivors: Some corporates may not have banks' support through this rough patch. The market remains concerned about the impact of global economic deterioration on corporate earnings. Investors are closely scrutinising companies that have overstretched via massive borrowings to fund their growth, or have yet to generate sufficient operating cash flow, as these corporates are at the highest risk of breaching bank covenants if business conditions worsen further.

On the other hand, there are corporates whose balance sheets are strong. Even with the deterioration in business conditions, banks will continue to support these corporates for their working capital and capital expenditure needs. These are the companies that are seen to survive this downturn. When economic conditions eventually improve, these companies could return to similar levels of profit or even exceed their previous peak profit levels.

Over the past few weeks, we have reviewed the financial forecasts and TPs for all the stocks under our coverage. With the cuts in TPs, we now arrive at a fair Straits Times Index (STI) target of 2,080 over the next 12 months.

However, in the short term, we see further weakness which could bring the STI to as low as 0.95 times P/B, or a 1,560 level. With the downside of about 10 per cent from the current STI level and difficulty in pinpointing the exact bottom, we recommend investors to start nibbling at stocks that will survive this crisis.

We have identified the following big-cap stocks which we believe will ride through the crisis and emerge stronger:

Singapore Press Holdings ('buy', TP: $4.35): Over the years, SPH has successfully diversified its business, moving into magazines, property and the Internet. Recurring income in the current two financial years should be aided by the property segment, thanks to high rentals for its flagship Paragon mall as well as its sold-out Sky@eleven project.